Best of bad choices

[laurence]

So I'm reading the 4 pillars and trying to use what I've learned. My 401(k) has some good choices, but my DW has some crappy funds! I'm desperate for some advice on this, at this point I'm ready to leave it all in the S&P 500 index! I know, handing out investment advice, tricky, but if any of you have read 4 pillars, do you see a way to approximate that strategy here?

Stock Investments
Large Cap

ADV GR & INC CL T
Inception Date 12/31/1996 2.15 2.37 -4.04 N/A 6.13 04/30/2005

AIM BASIC VALUE A
Inception Date 10/18/1995 4.81 2.84 4.83 N/A 12.41 04/30/2005

* DREYFUS S&P 500 INDX
Inception Date 01/02/1990 5.88 3.75 -3.42 9.69 9.75 04/30/2005

* OPPHMR CAP APPREC A
Inception Date 01/22/1981 2.91 1.96 -5.24 11.08 14.14 04/30/2005

VK EMERGING GRTH A
Inception Date 10/12/1970 1.64 -2.35 -14.39 10.00 14.65 04/30/2005

Mid-Cap

ADV MID CAP CL T
Inception Date 02/20/1996 5.29 6.59 3.77 N/A 13.52 04/30/2005

Small Cap
* ADV SMALL CAP CL T
Inception Date 09/09/1998 10.72 8.23 2.66 N/A 13.72 04/30/2005

RS SMALLER CO GROWTH
Inception Date 08/15/1996 0.48 4.11 -0.46 N/A 11.26 04/30/2005

International

ADV DIV INTL CL T
Inception Date 12/17/1998 12.46 12.12 4.25 N/A 10.51 04/30/2005

* OPPENHEIMER GLOBAL A
Inception Date 12/22/1969 10.30 7.76 1.18 12.40 12.56 04/30/2005

Specialty
ADV HEALTH CARE T
Inception Date 09/03/1996 4.85 3.77 2.05 N/A 10.82 04/30/2005

ADV TECHNOLOGY CL T
Inception Date 09/03/1996 -4.16 1.35 -17.33 N/A 6.32 04/30/2005

ADV TELCOM UTIL GR T
Inception Date 09/03/1996 19.99 9.68 -8.04 N/A 7.52 04/30/2005

Blended Fund Investments*
ADV BALANCED CL T
Inception Date 01/06/1987 2.86 4.22 0.60 5.83 8.44 04/30/2005

ALL/BERN BALANCED A
Inception Date 06/08/1932 6.89 6.60 5.64 10.31 5.27 04/30/2005

Bond Investments
Income

ADV GOV'T INVT CL T
Inception Date 01/07/1987 4.43 4.97 6.56 6.24 6.51 04/30/2005

ADV MORTGAGE SEC CLT
Inception Date 12/31/1984 4.76 4.60 6.63 6.62 8.03 04/30/2005

Short Term Investments
FIDELITY TREASURY FD
Inception Date 08/31/1983
7 day yield as of
04/30/2005 2.11% 1.13 0.81 2.04 3.47 5.00 04/30/2005

 

[charlie]

Laurence,

Keep in mind that the important thing is to look at all of your
financial investments as ONE portfolio. It might make perfect
sense to use the 500 index in your wife's 401k and use your
401k for additional diversification.

Cheers,

Charlie

P.S. Don't forget I-bonds in your taxable!

 

[laurence]

That's a good point, I could make her portfolio mostly index and eliminate it from my portfolio. Still I don't like any of the other choices, from what I can tell.

 

[cute fuzzy bunny]

I've done that a bit with my wifes 403b. Crappy choices but they do have a good 'global equity fund', so I socked a lot of her money into that and eased up on the foreign and US growth a little.

Charlie...you can hold your ibonds...between your knees!!! (I'm presuming you're a jack nicholson fan and this wont totally hang in the breeze)

 

[ag4gt]

My only thought is: Why do you have all of these funds? If you buy the market in a fund like Vanguard Total Stock Market why do you need anything else? You own the entire market. It seems to me you are paying a LOT of fees for duplication of effort, and purchasing the same thing over and over again.

 

[Mr._johngalt]

My only thought is:  Why do you have all of these funds?  If you buy the market in a fund like Vanguard Total Stock Market why do you need anything else?  You own the entire market.  It seems to me you are paying a LOT of fees for duplication of effort, and purchasing the same thing over and over again.

Yeah, that was my reaction too.

JG

 

[laurence]

No, no, I don't own all these funds, these are all of my choices, sorry for the confusion! That's the whole menu, not what I've ordered!

She's in the S&P index, capital appreciation, small cap, and international.

 

[cute fuzzy bunny]

My only thought is: Why do you have all of these funds? If you buy the market in a fund like Vanguard Total Stock Market why do you need anything else? You own the entire market. It seems to me you are paying a LOT of fees for duplication of effort, and purchasing the same thing over and over again.

You primarily own US large cap growth stocks, very little direct foreign exposure, no bond exposure, and some of the past and likely hotter future sectors like real estate, gas and oil and so forth are almost non-existent. You have very modest current income in the form of dividends from TSM. You have no currency exposure.

Which isnt to say 100% ownership of TSM or a Target Retirement wont get you by.

I've seen numbers that show conclusively that a portfolio of ~60% small cap value and ~40% commodities gives you a SWR far higher than 4% and back tests great...better success rates than a 'target retirement' type setup as well. So why isnt everyone doing that?

 

[unclemick]

Same reason I ain't spending 75k with early SS this year for our 60/40 portfolio - even if Firecalc says it's 100% safe - backtested and all that.

We got the first 11 years of ER in by my being a Cheap SOB - and CHANGE my habits - NEVER, NEVER, NEVER!

Markets may change/fluctuate - Tradition dies hard.

Wellll may lighten up a little on spending. Change the horse I rode in on - that's tougher.

Durn Wellelsey - still looks good even after all these years(last owned 1993).

 

[ats5g]

Hi Th,

I've seen numbers that show conclusively that a portfolio of ~60% small cap value and ~40% commodities gives you a SWR far higher than 4% and back tests great...better success rates than a 'target retirement' type setup as well.  So why isnt everyone doing that?

That SWR # doesn't reflect the after commissions, spreads, and fees. For SCV, my guess would be that these would've amounted to about 3-5% of each years' return - more for really small and really value [e.g. DFA SV]. So, I highly doubt that anyone could've realized this SWR.

- Alec

 

[unclemick]

Seriously

I recommend charlie's post - depending on where you are in the accumulation/distribution cycle - choose the simplest solution possible.

Unless you a born again slice and dicer or something.

My nephew got Bogle's 1994 book and my stern lecture out of the Naval Academy - wisely listened - 100% closest TSP version of total market index for ten years(it was a good decade). Now after ten years - has read Four Pillars and stationed in CA of all places, first child this year and thinking real estate(civy wife with good job).

Need to talk to the boy! Those male hormones will lead you to overthinking.

Simple is good. Of course, I have my dividend stocks.

Heh, heh heh.

 

[ESRBob]

That SWR # doesn't reflect the after commissions, spreads, and fees. For SCV, my guess would be that these would've amounted to about 3-5% of each years' return - more for really small and really value [e.g. DFA SV]. So, I highly doubt that anyone could've realized this SWR.

Alec,
The fees on DFSVX, (DFA's smallcap US Value fund) are 0.56% a year. Not sure how to calculte spreads and commissions on their trading, but would be surprised if they got nailed that badly.

In any case, this fund outdistance the Russell 2000 Value Index (value stocks chosen from among the smallest 2000 of the Russell 3000 stock universe) by 3% or so a year over most of the historical periods. Since the index would not include spreads or commissions at all, never mind fees, I still contend that DFA does a great job at delivering the returns of this asset class (US Small Value) at a fair price.

http://www.dfaus.com/downloads/pub/pdf/fact_sheets/us_equities/small_cap_value_port.pdf

 

[cute fuzzy bunny]

Alec - Raddr did this up on his site at www.raddr-pages.com

He had a bunch of breakdowns by asset classes coupling an equity component with an inflation hedge like commodities or tips. Then he backtested their 'safety' against the historic data. I'm not an economist, I dont play one on tv and I didnt even stay at a holliday inn express last night, but a lot of his info seems good to me.

However of the top handful of people whose advice I trust without question, you're one of them. I know there are 'hidden' costs in funds like transaction fees that eat up returns without being seen easily. I'd be surprised if they hacked the resulting numbers down that far, but its possible.

By pure recollection, I think raddr was showing a 6.somehing or 7.something% SWR from the SVC/Commodities mix.

I dont have the stones for that though, thats for sure...

 

[unclemick]

I don't think raddr does either - but clearly he has more than me - and apparently has done well. Every once in while puts up his portfolio selections. Someone interested in slice and dice - or even worthwhile diversification ideas will find some intriging posts.

 

[ats5g]

Hey gang,

I've got no problem with raddr's commodities stuff. I think he makes a pretty good case for commodities as diversifiers. He's a pretty smart guy. Roger Gibson also makes a good case for commodities here and here .

I was pointing out that unfortunately we can't really model the actual return to an investor because we don't know the actual costs to investing in collateralized commodities futures. This is a problem with using historical indexes for SWR analysis because commissions and spreads were a lot higher than they are now, and there were no index funds before 1975-ish. My guess was that the costs were much higher than they are today, which I think is a good guess, especially for buying what were fairly exotic investments for non-institutional investors.

Gotta love all those "gentlemen's agreements" of those brokers/traders/specialists to keep the increment in spreads only as low as 1/4 of $1.00 for years and years. Can you imagine when the lowest spread on NYSE stocks was only $0.25. 8) I think it was only recently [perhaps in 2000-2001] that the SEC mandated the industry go to decimal spreads in increments of pennies and fractions of pennies, instead of 1/4, 1/8, or 1/16 of a $. Perhaps Brewer can give a quick history of the increments of spreads.

As for DFA, I wasn't suggesting that their funds have high expenses since, as Bob noted, they most certainly don't. I guess I wasn't all that clear, and combined two thoughts into one. Oh well. What I meant to say was that because of the higher costs of investing [commisions, spreads, taxes?, account fees] in the past, I would think that the realized investor returns, especially for small caps and small cap value, wouldn't be all that close to F&F's scv indexes. Perhaps anywhere from 1-5% less, depending on the investing costs at the time [the further in the past, the higher the trading costs].

Unfortunately, we don't have an actual fund with actual investors' returns in small cap value pre early 1990's [I'm not quite sure the exact inception date of DFSVX]. I think DFSVX does an excellent job of capturing the small and value premiums, and if I needed to use an advisor I would definitely use DFA funds.

I think raddr gives some excellent advice:

Certainly no rational person would retire with a portfolio split roughly equally between ScV and a commodity futures fund but it is clear that a portfolio split about evenly amongst multiple asset classes including commodities would've fared well in the past and probably will in the future.

Wow. this was waaaaaaaaaaayyy off topic. Sorry laurence. I agree with the others of using the lowest cost investments in each 401(k).

- Alec

 

[eleighj]

Seriously

I recommend charlie's post - depending on where you are in the accumulation/distribution cycle - choose the simplest solution possible.

Unless you a born again slice and dicer or something.

My nephew got Bogle's 1994 book and my stern lecture out of the Naval Academy - wisely listened - 100% closest TSP version of total market index for ten years(it was a good decade). Now after ten years - has read Four Pillars and stationed in CA of all places, first child this year and thinking real estate(civy wife with good job).

Need to talk to the boy! Those male hormones will lead you to overthinking.

Simple is good. Of course, I have my dividend stocks.

Heh, heh heh.

Unclemick2

Why not the Vanguard Target Retirement Series say 2015 and call it quits.

eleighj

 

[laurence]

So...uh...no one has any favorites in the funds I listed, eh? Maybe a top three (I know the S&P index would be one). DW and I are able to max the 401(k)s and our Roth IRA each year, should we lower her 401(k) contribution and go after tax to get into better funds?

 

[ESRBob]

Laurence,
A quick look at those fund I see several that have high annual fees. (Alliance Bernsteins are one of my favorite offenders).

I didn't see any favorites on your list there. Am essentially 100% in Vanguard, DFA and Pimco Institutional funds.

Most of these 401k plans are sold by brokerage firms to the employer. We all know what that means: "Lets' find all the different ways to convert employee retirement savings into brokerage firm income."